Ways to Pay Off Financial Aid Debt

It's relatively rare that anyone completes an advanced degree without some financial assistance. As the availability of grants and scholarships declines, more students are taking out loans, putting them in the position of having to pay off the loans as soon as they leave school. Financial-aid debt is difficult to discharge in bankruptcy, so repayment is not an issue that can be avoided. Start making plans before you leave school about how you will pay off your financial-aid debt.

Save

Many students enroll in a work/study program or get part-time jobs to help make ends meet during school. Even if your only income is the loans you took out, try to avoid spending it all. If you're able to finish school with some savings, you can apply it to your debt repayments when you graduate. If you have unsubsidized loans, use your savings to pay the quarterly interest on these loans so the principal doesn't balloon on you while you're in school.

Scholarships and Grants

Apply for scholarships and grants. If you didn't get that scholarship your first year, there might be money out there for you in your second, or third or fourth year. Identify which awards you might be eligible for (consult your financial-aid office), learn the criteria and apply for everything you have a chance at receiving. Government grants don't have to be paid back and can be applied to your other financial-aid debt.

Loan Forgiveness

Look into loan forgiveness. This isn't a handout; it's a program administered either by your school or the federal government that forgives your loan in part for qualifying public-interest work you perform after graduation, which might mean teaching or working in a public-interest office. The earnings potential from such employment is not particularly exciting, but the combination of the pay plus the money saved by loan forgiveness is an incentive. Ask your financial-aid office about loan-forgiveness programs that might apply to your situation.

Consolidation

The hidden fees and charges associated with debt consolidation can make it a risky proposition. But if you find an institution willing to consolidate your debts at a significantly lower interest rate than you're paying on your loans, it probably is worth investigating. However, student loans often have deferment or forgiveness clauses that most likely will be lost if your debt is consolidated.